SEPA – Another milestone in payment centralisation and localisation across Euro zone

                                          With the introduction of the euro currency in 1999, people across the euro zone countries could easily pay for goods and services in cash using the single currency system. But to make cross border payments still remained a challenge due to prevalent political, legal and markets conditions in each European Union (EU) country. To overcome this challenge – EU governments, the European Parliament, the European Commission and the European Central Bank (ECB) came together with the idea of a centralized one payment system that would integrate the euro payments market. This payments integration initiative came to be known as ‘SEPA’

SEPA IS - an area in which consumers, companies and other economic actors will be able to make and receive payments in euro whether between or within national boundaries under the same basic conditions, rights and obligations regardless of their location.

                                       

Fig 1.1 SEPA Countries

SEPA aims to - 

• Make euro a single and fully operational currency through the integration of multiple existing euro credit transfer and euro direct debit schemes,
• SEPA for cards to bring in consistent customer experience while making or accepting payments,
• common technical standards,
• common business practices,
• have a harmonized legal framework,
• incentivise increased use of electronic payment instruments.

SEPA Building Blocks:

Credit transfers, direct debits and payment cards are well-known payment instruments that for decades have proved their efficiency and popularity throughout the European countries. A detailed common scheme for SEPA credit transfers was developed and the first payment transactions based on this new scheme took place on 28 January 2008. The main instruments in SEPA are around which banks can develop SEPA payments products are:

• SEPA Credit Transfers
• SEPA Direct Debits
• SEPA Card Payments

SEPA Credit Transfers is an inter-bank payment scheme that defines a common set of rules and processes for credit transfers denominated in euro. The scheme defines a common service level and a time frame under which financial institutions participating in the scheme must as a minimum conduct SCTs.

SEPA Direct Debits is an instruction from a customer to their bank or building society or payment provider, authorizing an organisation (known as an Creditor) to collect variable or fixed amounts from their account, as long as the customer (known as the Debtor) is given advance notice of the collection amounts and dates.

SEPA Card Payments – SEPA compliant use of payment cards is the “SEPA Cards Framework” issued by the European Payments Council.

ISO 20022 XML format:

To provide for the more efficient operation of the single euro payments area in the European Union, the European Parliament adopted Regulation 260/2012, according to which by 1 February 2014, at the latest, the data interchange between the client and the bank must use the message formats based on the ISO20022 XML standard.

The BIC, the IBAN & the BBAN:

The BIC  - Banks use the SWIFT network for the exchange of financial messages. In order to route a message to a certain bank or branch office, a Business Identifier Code (BIC) is used. A BIC consists of a four character business entity identifier followed by a two character country code followed by a two character location code i.e. in total eight characters. BIC may also be extended to 11 characters where the last three characters then identify a certain branch office. The BIC is represented by ISO Standard 9362

IBAN - Stands for International Bank Account Number. It identifies an individual account, at a specific financial institution, in a particular country and is used to process financial transactions between institutions in different countries. An IBAN consists of 34 alphanumeric characters. IBAN is represented by ISO Standard 13616

BBAN - Basic Bank Account Number (BBAN) format is decided by the national central bank or designated payment authority of each country. There is no consistency between the formats adopted.

SEPA Migration: Challenges and Benefits

Inefficiencies in the present banking and payments, if rectified, could save the EU economy between €50 billion and €100 billion a year. Banks across Europe has come up with many improvements towards payments such as TARGET2, innovations within the national ACHs; as well SEPA has indeed helped reduce costs.

The silo structure within the banks payments systems is indeed a challenge evolved in response to many years of different national and international standards and regulations, rules and practices, and mergers and acquisitions. Hence, implementing unified payment architectures and processes becomes all the more difficult and the best suggested approach could be a phased approach.

Banks typically face three options in restructuring –

1). Migrate existing domestic platforms to SEPA

            - XML implementation becomes difficult for older applications and they require modifications to become more efficient

2). Migrate international platforms to SEPA

            - These systems are usually not scalable to sustain the combined domestic  and international volumes as migration to SEPA gains momentum

3). Create a new SEPA platform

            - With the flexibility required to process all payments on a more modern scalable architecture.

What changes in the existing payments system help SEPA compliance? The new SEPA Credit Transfer and DD schemes require the use of the International Bank Account Number (IBAN) and Bank Identifier Code (BIC) as well as the XML ISO 20022 standardized file format to exchange bulk payment and DD files between banks and corporates.

It's also essential t determine the scope of the SEPA migration challenge. Key factors to be determined are the current and predicted payment volumes, values and types of euro payments versus receipts; Credit Transfers versus DDs, domestic versus cross-border, business to business versus business to consumer transactions, as well as which bank accounts and banking relationships are affected by SEPA. It is also important to determine the SEPA readiness of the key payment partners - both banks and technology providers.

IBANs are longer than domestic bank account numbers and sort codes, so some system field lengths are too short to hold enough characters to comply with SEPA. This may require a system upgrade, a new bolt-on solution or even a complete system replacement. For large corporates the real challenge would be when they start the implementation process, though they are aware of what SEPA can bring in for them, especially when the migration of both SCT and SDD are to take place in parallel. There is also the huge costs of migration associated towards achieving SEPA compliance. 

The realization of SEPA lies in it's implementation. Strong cooperation among all stakeholders is crucial in achieving this dream with both banks and technology vendors having a clear business case to carry this migration with minimal disruption, cost overruns, data loss or system failure. The benefits can be harvested only when this migration is complete.

                                                           Courtesy: European Central Bank

  

Future Banks: Who will decide or lead this transformation?

It has to be agreed that banks with too much focus on risks and regulations has been slow innovators and failed to think out of box. With the advent of agile competitors like Google and Facebook, banks really felt the need for a customer centric transformation for sustainability in the financial marketplace. These large technology behemoths seemed to have caught banking institutions by surprise.  Their customer centric approach, ease of use technology products have won them a large customer base and so, it’s crucial for banks to move away from their traditional product centric approach to being more customer focussed and being more free towards technology adoption. Will either sides collaborate or compete each other to write a new chapter in banking innovation?

Threat indicators – where does this tale begin?

                                                                                      Never had anyone thought technology and social networking companies would be more than just enablers to businesses. Traditional banks were caught in regulations which limited them to think and innovate where these technology firms were at free will to innovate. They were tempted to foray into the financial world posing as a direct threat to the custodians of money because it was simply all about money. Therefore, one fundamental question keeps tickling. Will large technology firms like Google and Facebook be able to replace these age old banking institutions or will they co-exist?

Global meltdown was narrowly averted. Now comes the hard part: actually growing revenues in the face of tepid loan demand, low interest rates and new regulations. Consultants at KPMG say the key to pulling off that feat will rely in large part on beefing up banks’ technological prowess. “In our view, the next crisis could revolve around IT, given the value and volume of data that banks generate, the attraction of that data to cyber thieves and vandals, the complexity of banks’ IT systems, and banks’ utter reliance on those systems,” the firm says in a new banking-industry outlook report.

 Today very few of us would prefer to walk in to a bank to make a transaction or carry paper money in our wallets to pay at retail outlets. Instead would prefer to have transactions done online or through the use of plastic money. The pioneers and enablers of technology who had been helping banking institutions for centuries have themselves showed signs of entry into the banking world. In the next two to three years, it’s to be seen that only 5percent of the consumer interaction will happen through branches. Concepts that were once seen to change the face of banking have itself shown signs of demise when internet and telecommunications technologies have evolved, got cheaper and easily accessible.

New leagues of competitors are emerging free from banking burdens: obsolete systems, costly distribution networks, regulations. The growth of internet and accessible telecommunications has brought with it the death of branch banking which was once thought of revolutionizing banking itself. Those seen as niche businesses like PayPal, Square, iZettle, SumUp, Dwolla may soon expand or seek alliances. Alibaba, China’s equivalent to Amazon became a $16 billion lender in less than three years, and China’s largest seller of money market funds in only seven months.

These upstarts are gaining footing in the banking world with prepaid debit cards that customers can use to pay bills, make purchases and deposit checks via a Smartphone camera – all things that could be done with a traditional banking account. These firms such as T-Mobile, Wal-Mart, google and a host of others in the retail, tech and telecom world has the backing of a highly coveted group that traditional banks have struggled to attract – YOUNG PEOPLE. The threat indicators can be sensed in terms of these firms having an existing customer base, scale and the ability to adopt new technologies quickly.

 Payments which happen to be a source of up to one quarter of traditional bank revenues is one of the most contested areas. PayPal is now the number one online payment method in some countries and start ups like Square and Stripe are earning multi-billion dollar valuations. Retailers like Wal-Mart and Starbucks are also moving into this space with nearly one third of domestic Starbucks revenues are paid through its own loyalty cards. Walmart on the other hand has teamed up with American Express to launch a prepaid card that functions like a debit card; it captured more than a million customers in less than a year. Walmart recently launched a new service which it calls as ‘Walmart-2-Walmart Money Transfer Service’ that allows customers to transfer funds among the more than 4000 Walmart stores in the United States. If you would have had a glance of Walmart Money, you would find it to offer services such as Money Transfers, Bill Pay and Money Orders, Check Cashing, Pay with Cash, Coinstar, Protection and Tax services.

Are traditional banks living upto this challenge?

Survival is the key. To retain customers, banks need to turn customer centric, be in an advisory role and be available 24/7. Traditional banks need to cautiously formulate their strategy to respond to the new threat posed from a new group of retailers, telcos and tech firms. It’s interesting to find out what steps some of the banks take to mitigate this new threat. The global management consulting, technology services and outsourcing company Accenture estimates that 35 percent of banks' market share could be "up for grabs" by 2020 as customers shift to digital banking products.

Banks across the globe are trying hard to get themselves overcome this challenge caused by ‘disruptive innovation’ in banking. 'Disruptive Innovation' describes a process by which a product or service takes root initially at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors. “Clay Christensen is renowned for pointing out how incumbents routinely succumb to Disruption, even as they do everything they can to be more competitive. And while there is little to indicate that banking might be an exception to the rule, there’s still enough time for bankers to read, understand, and act on the handwriting on the wall.”

Credit Agricole, one of the largest retail banks in France has developed a platform called ‘CA Store’ for jointly creating and downloading banking applications. It has arranged to bring application creators together in a cooperative known as ‘Les Digiculteurs (“Digi-farmers”) and put them in touch with customers seeking innovative, high performance applications for their banking information. It’s interesting to have a view at: https://www.creditagricolestore.fr/

Another banker, BBVA believes banks like retailers should put their customers first. In line to this vision BBVA along with continuum has designed ‘The Bank of the Future’ an initiative believed to be customer centric in line with customer’s new habits and changing behaviours. This model for retail banking provides customers with the freedom to bank the way they want and is adaptable to markets across the globe. Combining virtual experiences with hands-on relationships, social networks and global standards with local adaptations, the new service model increases efficiency while providing the human guidance people need to make financial decisions. The service model is convenient, reduces costs and allows each customer to interact with the bank according to their individual needs, while increasing transparency between customer and bank. The model works in both developed and developing markets.

CaixaBank, Spain’s leading bank by market share has designed a multi-channel banking strategy which ensures optimal service accessibility via any device, as well as its success in harnessing technological advances to address customer requirements, enhance services and drive efficiency. Other standout innovations at CaixaBank include Wearable banking (financial applications for smartwatches which synchronises with your mobile phone and is worn on the wrist and Google Glass, Línea Abierta on Facebook (application that allows users to view their bank account information and perform transactions via the social network), Stocktactics (new online community where customers can share investment strategies and help them make decisions), Business Wall (new model for relations with business customers, based on web 2.0 systems and social networks) somewhat similar to Facebook Message wall allowing customers to communicate with CaixaBank consultants in a secure environment, and Transfi ( designed to help users share and split costs as well transfer money using person to person system (P2P) based on QR codes. Capital One Bank at one of its innovation labs in San Francisco is tasked with developing innovative digital products and “re-imagining the way customers interact with their money”. It will focus on building mobile apps, middleware and some big-data solutions using technologies like Hadoop and Spark to improve analytics. Capital One Labs website itself says ' THINK BANKS ARE BORING? We're changing that'. Banks themselves have felt they need to change, custom and adapt themselves to customer expectations.

Branches, once considered the core strengths of a bank have now lost its charm. St George Bank, an Australian bank has moved one step ahead and plans to decommission their online banking to become a ‘mobile only’ bank. They seem to be at the forefront of innovation amongst the Australian banks with customers having the privilege to use technologies such as biometric log-ins to their mobile banking, ibeacon technology and so on. The Australian Commonwealth Bank for instance is searching for genuine value in the technology as evident from the fact that it has used augmented reality in its property app which has turned it into more than just a technology gadget. It built a financial ecosystem by teaming up with the real estate sector and aims to offer clients fast and easy access to real-estate data when they are standing in front of a house. People can access information about the price of the house, its sales history, auction data, the suburb profile, the demographics of the environment, and so on. The app also contains the bank’s own client data – the affordability of the house for that customer, the number of repayments, the interest rate it can offer etc. The bank understands that buying a house is an emotional decision. Either you fall in love with it or you don’t. And when you do, the bank is there. Commonwealth Bank is trying to change the customer journey, reducing the number of “mortgage shoppers”. It is trying to lock-out competition by keeping the client close to the bank through partnering up with real estate experts to offer something of real value. This way we can also see that banks are extending their present ecosystem to compete with the emerging technology banks.

The run for supremacy has just begun with many banks and non banks setting up innovation labs for research and innovation - all have one objective to achieve - to build long lasting customer relationships. Customers today envisage a bank that's functional 24/7, multi-channel, highly mobile, ease to operate and which is much beyond traditional banking!

A bank-wide centralized payment services hub: Will it be just a dream or reality?

Payments have been an integral part of banking services ever since the advent of monetary system and this has been evolving along with the number of services and channels banks have kept adding over the years. With the transition and increased acceptance of electronic cash over the years with multiple channels at its disbursal like Mobile banking, Internet banking, Cards, it has become an increased necessity for banks to have an enterprise wide payment services hub (PSH) to effectively monitor the flow of cash and thus to provide transparency and traceability of monetary movements which will help in measure of its risk exposure. Banks are also hard-pressed to find the most efficient means to fulfill payments and to provide the best customer experience possible.

Currently, more than 40% of payment services hub projects are at large financial institutions with assets exceeding $100 billion, and nearly 56% are in Western and Northern Europe, based on data provided by nine leading PSH vendors. However, banks of all sizes and from all geographies are starting to consider how to adopt PSH concepts in their payments businesses, according to the Celent report, “Payment Services Hubs: The Bank’s Perspective.” 

To have a standardized and simple solution has brought in the initiative amongst banks towards transitioning to a unified enterprise-wide payment solution. The focus is on creating payment hubs which will serve as a single platform that operates across all customer relationships, channels of interaction and payment alternatives. But few financial institutions actually have implemented a true, single global payments hub.

What's holding back banks from making an infrastructure improvement that could create value for their payments operations while improving the customer experience for clients? The reasons cited are many which holds back banks from making an investment in payments modernization or rather say payments consolidation are like the huge onetime cost, the region or country specific regulations and business complexities, the limits of legacy systems and finally the uncertainty of the end result or success rate of implementing a Payment Services Hub (PSH).

Defining a Payment Services Hub (PSH):

A PSH is “the centralisation of payments services within a bank to support processing all types of payments through all payment mechanisms globally,” according to Richard Davies of Finextra.

A PSH is an intelligent central engine that uses workflows to capture, map and route payment information through clearing, settlement and risk mitigation, according to Gartner.

Current State and the Need for Change:

Most payment infrastructures today consist of two main components as defined below:

§  Customer Interaction Channels – Any system used by a customer to deliver payments to a bank is defined here as a Customer Interaction Channel. These channels may be interactive or file based. Examples of an interactive channel include a retail Internet banking site where a customer is paying his or her monthly bills and a teller entering a remittance payment to Mexico on behalf of a branch customer. A file based interaction would be one in which a collection of payments is sent to the bank via a file transmission, such as a corporate customer sending a file containing payroll, wire transfers, and International payments for processing.

§  Payment Execution System – An execution system is system used by the financial institution to actually process the payments sent to the bank through the Customer Interaction Channels. These systems are connected to the payment processing network, and each bank typically has multiple Payment Execution Systems that correspond to different types of payments. Examples here include a US Wire Transfer System (connected to FEDWIRE), an International Wire Transfer System (connected to SWIFT), and a UK low value payment system (connected to BACS).

The past ten years has seen a proliferation of Customer Interaction Channels. Payment instructions can now be received by the financial institution through a myriad of routes, including Retail Internet Banking, Corporate Internet Banking, Remote Capture Check Truncation, and “on behalf of” customer service payments. Typically, each of these interaction channels has had to connect directly to a Payment Execution System, creating a ’spaghetti effect’ of integration complexity. In addition, many components of the payment processing workflow have been buried in the Payment Execution System code, preventing reuse across different payment types. For example, processes like duplicate checking, OFAC checking, AML, and IBAN validation are not centrally located.

The requirement for modernization of this existing payments infrastructure is driven by need to handle a changing payments world efficiently and cost-effectively with a clear focus on improving customer service levels. Payment infrastructures need to support new initiatives such as the Single Euro Payments Area (SEPA), Pan-European ACH (PEACH), and UK Faster Payments. Adaptation to new regulatory and risk management practices (OFAC, AML, IBAN Validation) need to be made in one location and apply to multiple payment types to save both the cost of initial implementation and future maintenance. In addition, customers demand better visibility into the end to end payment process, as well as increased straight-through processing and the ability to repair and resolve issues independently.

A payment services hub addresses the current issues in a number of ways. COST; by focuses on industry standards hardware and software one can reduce costs. By focussing on the commonalities across all payments and spread investment across all payment types rather than making card investments then duplicating them to an ACH investment and then an international payment investment. In a nutshell, we can make a considerable difference in terms of cost savings by standardizing payments through a PSH. PSH can reduce the COMPLEXITY by bringing the multiple systems / environments that banks presently run to process their payments into one single environment thereby reducing cost and better monitoring. Adopting a PSH approach really enforces the need to look at payments as whole rather than across business types. As HYBRID payment systems like Faster Payments, PayPal and iDEAL becomes more endemic in banks, a PSH can be brought in to reduce the complexity.

Payment Services Hub Vendors:

In evaluating PSH software vendors to support payment services hub implementations, banks must align the strengths and weaknesses associated with the vendors market for coming up with a decision on choosing a particular vendor as payments remain the backbone of any banking organization.

It’s the bank’s decision what type of software service provider they would like to choose to partner with. Payment Services Hub (PSH) vendors can be broadly classified into three types based a their industry focus: a). Payments/transaction banking focus - examples includes Clear2Pay, ACI, Fundtech and Dovetail b). Broad Financial services focus - examples include Polaris, Misys, and c). Broad industry focus - examples include Tata Consultancy, Logica, Infosys to name a few.

According to Celent, majority of PSH implementations are to be seen in Europe and North America with Asia following the latter two as per the diagram below.

It’s now to be seen that these payment services hub long talked about that were considered just a dream is turning into reality with a few successful implementations across the globe. What distinguishes a hub from just another payments component is genuine flexibility. It’s being able to fit into a complex environment and talk to other systems including the legacy applications. It’s using data from these applications to enrich the payments process. And it’s making what banks already have in place work more effectively – improving payments services. This level of flexibility means the hub can work in conjunction with processing, accounting and reporting systems, while also linking to other services, such as FX.

Value Creation through Big Data: Banking Perspective

Big data is a game changing opportunity for financial services companies. McKinsey Global Institute’s June 2011 report, Big data: The next frontier for innovation, competition, and productivity, estimated that US banks and capital markets firms together had more than an exabyte of stored data in 2009. That much data makes a unified data management system – one with high-performance analytics to grow revenue, reduce risks, prevent fraud and meet regulations – imperative.

While tumult in the financial markets shows no signs of slowing, as Europe’s debt crisis unfolds and the US recovery remains fragile. For retail banks, industry analysts estimate that the cost of recent regulations, combined with continued low interest rates, could reduce retail bank revenues by 30 to 50 percent, according to a December 2011 BAI Executive Report. Meanwhile, the technology needed to manage risk and regulation continues to chew up 15 percent of IT investments. Financial services companies will struggle in 2012 to find the optimal channel mix to deliver value to clients.

In the event of such a situation looming around financial institutions, can these huge volumes of unstructured data pouring in from regular sources as well from social networking channels like Facebook and Twitter serve a saviour’s task to unfold new vistas of ensuring profitability, productivity and better positioning for financial institutions.

Now the question remains to be asked. Will big data transform the future of financial marketing? Or will banks and credit unions get crushed by a crippling tidal wave of information?

Understanding Big Data

With all the devices available today to collect data such as RFID readers, microphones, cameras, sensors and so on, we are seeing an explosion in data available worldwide.

Big Data is term used to describe large collections of data, also called data sets that may be unstructured and grow so large and quickly that it is difficult to manage with regular databases or statistical tools.

While there are several definitions of big data, the most common reference focuses on data that reflects added Volume (terabytes, records, transactions), additional Variety(internal, external, behavioral, social), and increased Velocity (near- or real-time assimilation).

Understanding the “Three Vs of Big Data” is important, since understanding the value of data being created today allows a bank to understand their businesses, customers, channels and the marketplace dynamics, including new sales and service opportunities.

“Analytics, customer-centricity, and multichannel technologies are major trends across the market,” says Bart Narter, SVP of the analyst firm Celent, and co-author of a recent report, Core Banking Solutions for Midsize Banks: A Global Perspective.

“Banks increasingly want a core system that utilizes data analytics in order to provide a more complete view of the customer, which then allows for better customer-bank communication,” Narter writes.

In the financial services industry, while there is a great deal of discussion around big data, many banks are just beginning to consolidate and utilize many of the internal data elements at their disposal, such as debit and credit transactions, purchase histories, channel usage, communication preferences, loyalty behavior, etc.

In the context of big data, banks would expand their current structured insights to include the gathering and analysis of data from sources including web click streams, social interactions (Facebook and Twitter), geo-locational insight, and other similar new wells of information.

Let’s have a view of the depiction below published by IDC that shows the explosion in data and the available storage where the former is bypassing the storage capacity and raising new challenges in terms of storage for the huge quantities of data pumped in through various mediums.

Getting Big Data Right: Initiatives already begun....

The risk side of banking is all about controlling costs and risk – consider market, counter-party credit or liquidity risks; reputational harm; or government fines that affect financial health or solvency. Data integration and quality are paramount.

A risk analytics data model defines instruments, positions and counterparties along with market data, risk factors and models to compute risk exposures. It also supports stress testing and scenario analysis. With risk data housed in a unified repository, it is much easier to analyze market and credit risks, asset-liability management and liquidity risks. Aggregating risks across all portfolios provides a complete risk picture to the firm. This will help the executive committee and boards of directors understand total firm exposure and how that compares to the firm’s risk appetite.

It’s not just talks, but action has begun amongst banking community. As part of its five-year vision around data, ING Direct is planning to invest AU$1 million to execute its big-data strategy, with technology implementation set to be completed by late 2013. ING Direct's BI team is not contained within the IT department. In 2006, the data-warehouse team was taken out of the IT department, and merged with the analytics team to form the BI division. The latter has since been combined with marketing intelligence, and now sits in ING Direct's customer department.

The BI team has a stake in marketing, the brand, customer experience, and the banking products themselves. "Basically, we are responsible for data warehousing, for reporting and analytics, for market research, and targeted marketing,"  ING Direct head of business intelligence (BI) Greg Nichelsen said.

At ING Direct, data analytics is fed into everything. The bank is able to gleam customer segmentation, churn behaviours, and customer experience through data analytics.

Earlier this year, Bank of America launched a trial service that allows customers to enjoy savings based on their history of spending. With the advantage of online banking, customers can view deals that match with their shopping behavior.

Whenever a customer swipes a Bank of America credit card, the deals automatically apply. As a result, the number of credit card activations and usage rose exponentially. The campaign is a win-win for all parties. Customers save money from the deals, merchants can tailor the deals and recipients to influence consumer behavior, and the bank receives more transactions because people use their credit cards more frequently.

BNY Mellon is taking on a major IT project that's reimagining everything about how the $1.4 trillion-asset bank stores, crunches, uses and delivers data - perhaps the second most important four-letter word in banking after cash. The bank's IT executives have realized that strong data management and analytics are no longer a nice-to-have, but a must-have.

BNY Mellon is embarking on its project at a time when almost all banks are sorely behind when it comes to collecting and crunching customer and market information to be an informed partner with its customers and staff. It's a holy grail that still eludes almost all traditional financial institutions, and it's why you hear so much about PayPal, Square, Movenbank, Google and even Walmart doing the innovative work in user experience that banks should be doing.

The bank's goal is to make BNY Mellon's web analysis work "more like Google" in the sense that when people log into the bank's site from a PC or mobile device, or a more traditional channel, the bank is ready with a full picture that leverages all of this new data to anticipate a service query or a need. For example, Google's analytics program provides marketers with information on a consumer's web visits, the visits' geographic origin, time of day, amount of time spent on site and what parts of a site that consumer visited.

The bank's goal is to make BNY Mellon's web analysis work "more like Google" in the sense that when people log into the bank's site from a PC or mobile device, or a more traditional channel, the bank is ready with a full picture that leverages all of this new data to anticipate a service query or a need. For example, Google's analytics program provides marketers with information on a consumer's web visits, the visits' geographic origin, time of day, amount of time spent on site and what parts of a site that consumer visited.

As part of the new Big Data project, the bank, which employes 13,000 technologists globally, will seek to move beyond the siloed and department-centric manner in which data has been stored and analyzed. BNY Mellon also hopes to enable centralized access to its data regardless of which data center it chooses for storage. The bank has data centers around the world and its strategy will be independent of physical location.

BNY Mellon's database tech includes MongoDB, Cassandra and Lucene, which are designed to scale based on need and expansion. MongoDB is an open source NoSQL document oriented database which Kumar says can store time series effectively in addition to content management. Kumar says that in a large organization, there are lots of applications that create and store operational data. For any application that needs data across the enterprise, such as risk, the application typically receives that data from its source system and creates a data warehouse. Over a period of time, he says you end up with too many data warehouses with redundant data. The bank plans to use Cassandra to store the data once. "The quality of data is better because we have [centralized access to] data to keep track of instead of multiple [department data sources]," CIO Suresh Kumar says. He also says that by using open source technology, the bank is able to scale to store more data at less expense because it's managing less hardware. "Your cost of ownership goes down."

Bankinter, the tech-savvy small Spanish bank, last year started using a system to analyse complex loan portfolios on computers run by Amazon, an online retailer. Cloud computing enables it to hire massive number-crunching capacity whenever it needs it. These two factors are making it easier for smaller banks the world over to keep their credit-card businesses to themselves and lean against the powerful forces for more and more consolidation in banking.

Card networks such as MasterCard and Visa have begun mining their data to provide targeted advertisements. So have some banks. Citigroup, for instance, monitors the credit-card transactions of its customers in some Asian countries and uses the information to send text messages offering special deals. A customer buying clothes at around lunchtime, for example, might be offered a discounted meal at a nearby restaurant.

Asia is also seeing much activity in terms of Big Data. Panning to a scenario in Asia, Cosmos Bank is a dominant player in Taiwan’s cash-card market. The company uses analytics software to dive into its big data for up-to-date customer intelligence and risk management. Cosmos Bank is able to process and analyze each transaction throughout the month for a more accurate view of each customer’s behaviour, which helps them to extend the right offer at the right time.

Financial institutions have realized that they can’t be just mute spectators to the data that’s getting accumulated and available within their organizations and hence many have taken the initiative to start analyzing these data to provide valuable insights for various purposes. They cannot let themselves crushed by these huge tidal wave of information and hence have decided to utilize them.